Success to e-retail in the UAE is omni-channel model
The importance is evident from Emaar Malls' acquisition of online retail platform Namshi
Retail has traditionally been a cornerstone and a driver of growth for the UAE economy. The increasing evolution of traditional retail into online channels has now reached our shores, with global e-commerce giant Amazon's acquisition of Souq.com last year. This demonstrates international interest and belief in the region's potential.
It is not only the horizontal marketplace model that has seen interest regionally. Other digital business models, such as vertical marketplace aggregators, online classifieds, food tech, edutech and fintech, have all witnessed homegrown startups gaining greater adoption, and in many cases, investor funding.
This rise of e-commerce, and specifically online retail or 'e-tailing', is no surprise as it is backed by compelling demographics that point towards online retail growth. The current smartphone penetration rate in the UAE is among the highest in the world, at 81 per cent. Around 64 per cent of the total population is young, aged between 20 to 44 years. Further, according to KPMG's 2017 'The truth about online consumers' report, the average ticket size for online shoppers in the UAE is among the highest globally at $332.
However, as international borders blur with real-time trend updates thanks to social media, and local competition intensifies in a lucrative market, online retail players have to accurately gauge nuances of the regional e-retail landscape in order to emerge successful.
Consider a key differentiator of the UAE's retail market: the 'mall culture'. Soaring temperatures throughout half the year and larger-than-life 'destination' malls have made shopping at brick-and-mortar stores a preferred choice for many UAE residents and tourists. While the region enjoys world class supply chain infrastructure, there is still a preference for cash on delivery; touch and feel is preferred for many product categories; online purchase returns can often be difficult; and delivery times tend to be slower than in global, more mature markets. There is certainly ground to cover.
The answer for a successful regional strategy appears to lie in the 'omni-channel' model, with the vendor offering both traditional and e-commerce based shopping channels in a seamless fashion. The advantages of such a model are manifold: increased customer share of wallet, access to customer data and resultant analytics, access to a wider network of fulfilment centres and touch points, scalability and associated cost economies, to name a few.
The online channel itself can be a dedicated, customised one or a tie-up with an aggregator such as Namshi, Noon and Amazon.com. Such alliances may offer a head start to new entrants through lower fixed-cost, more efficient logistics, larger subscriber base and most importantly, availability of ready infrastructure.
The importance of omni-channel is evident from Emaar Malls' acquisition of online retail platform Namshi in 2017. Similarly, founder and chairman of Emaar Properties, Mohamed Alabbar, launched online retailer Noon.com in 2017. Other retail groups are also investing in dedicated online shopping channels. For instance, 2 of the largest grocery retailers in the UAE are developing fully integrated online shopping offerings. Another retail conglomerate has launched independent online stores for its major brand concepts.
While the ideal strategy is still a work in progress, 5 factors are key to a successful omni-channel strategy.
> Traffic: In brick and mortar nomenclature, "traffic = footfall = sales". In the initial stage, spending marketing dollars can help get the traffic to your website. Over time, however, the focus needs to shift from generating online traffic to actually monetising it.
> Cost: Costs can be optimised through targeted marketing, efficient logistics and strategic decisions around the development of the online platform. Also, closely tracking customer acquisition costs against the customer lifetime values will help in understanding financial outcome. Otherwise, the business will be looking at a state of perpetual 'cash burn'.
> Product mix: Certain product categories can have higher sale conversions and better margins. According to a KPMG report, fashion accessories, mobile phones, electronic items, women apparel and fragrances (in that order) are the most popular product categories for online purchase in the UAE.
> Loyalty programmes: Today's customer is online as well as offline. This makes it difficult to track buying behaviour across channels, a problem loyalty programmes can fix. Investing in comprehensive loyalty programmes and encouraging adoption from the onset can mean that your big data can provide reliable and actionable trends.
> Logistics: 'Reverse logistics' (handling the return of goods purchased) can be an important success factor for the business as ease of returns is a big buying decision criterion for customers.
The writer is partner and head of retail, KPMG Lower Gulf. Views expressed are his own and do not reflect the newspaper's policy.
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